TUPE: The changing transfer market

The long-awaited Transfer of Undertakings (Protection of Employment) Regulations 2006 (TUPE) were finally laid before Parliament last month and come into force on 6 April 2006. However, there have been some important last-minute changes. In particular:

the replacement of the proposed penalty for failure of a transferor to provide information with a compensatory regime

a requirement for the transferor to provide information 14 days before a transfer

the removal of a professional services exclusion to contracting out.

Here we set out the most important changes, but employers are advised to read the regulations in conjunction with the guidance notes on the DTI website.

Contracting outThe regulations now deal with contracting out. Reg 3(1)(b) defines a ‘service provision change’ as being a situation where activities cease to be carried out:

by the client and are then carried out by the contractor

by the contractor and are then carried out by a subsequent contractor

by the contractor or subsequent contractor and are then brought back in-house.

However, certain conditions must be satisfied.

For instance, there must be an organised group of employees (which can be one employee) before the changes, which has as its principal purpose, the carrying on of activities on behalf of the client. In other words, an identifiable group of the contractor’s workforce must have been mainly engaged in the contracted-out service for that client if TUPE is to apply to the group.

For example, if a contractor was engaged by a client to provide a courier service, but the collections and deliveries were carried out each day by various different couriers on an ad hoc basis, rather than by an identifiable team of employees, there would be no ‘service provision change’ and the regulations would not apply.

The contracting out provisions will apply where the client intends that the contractor’s activities are not just limited to a single specific event or to a task that is of short-term duration. The one-off service must also be ‘of short-term duration’.

To illustrate this point, the guidance notes use the example of two hypothetical contracts concerning the security of a major sporting event. The first contract concerns the provision of security advice to the event organisers and covers a period of several years running up to the event; the other concerns the hiring of security staff to protect athletes during the period of the event itself. Both contracts have a one-off character in the sense that they both concern the holding of a specific event. However, the first contract runs for a significantly longer period than the second, therefore, the first would be covered by the TUPE regulations (if the other qualifying conditions are satisfied) but the second would not.

The activities do not consist of the supply of goods for the client’s use.

The regulations are not expected to apply where a client engaged a contractor to supply, for example, sandwiches and drinks to its canteen every day, for the client to sell on to its own staff. If, however, the contract was for the contractor to run the client’s staff canteen, then this exclusion would not count and the regulations might apply.

Public and private undertakings are covered regardless of whether or not they are operating for gain. However, an administrative reorganisation or transfer of public administrative duties between public administrative authorities are not transfers.

Effect of relevant transfers

According to Reg 3(1) a transfer takes place “where there is a transfer of an economic entity which retains its identity…”.

Under Reg 2(2) ‘economic entity’ means an “organised grouping of resources which has the objective of pursuing an economic activity, whether or not that activity is central or ancillary”.

Under Regs 4-6 & 10 the transferee takes over:

the contracts of employment of employees who were employed in the “organised grouping of resources or employees” immediately before the transfer, or who would have been so employed if they had not been unfairly dismissed by reason of the transfer. So, if an employee is dismissed beforehand, because of the transfer, their contract of employment might still be treated as having transferred.

all rights and obligations arising from those contracts of employment, except for criminal liabilities and some benefits under an occupational pension scheme (dealt with under pensions legislation).

collective agreements.

There is provision for continued trade union recognition where the transferor recognises a union in respect of the transferred employees and the group retains its identity on a transfer.

A transferee will not be able to vary the terms of contracts if the reason for the variations is the transfer (such as reducing the transferred employees’ salaries) unless the variation is for an ‘Economic Technical and Organisational’ (ETO) reason that relates to changes in the numbers of functions of the workforce. There are complex provisions in Reg 9 where there is an insolvency situation.

Consultation

Importantly, there is a new duty on a transferor to disclose ’employee liability information’ to the transferee, in writing, or another easily accessible format, not less than 14 days (or as soon as reasonably practicable) before the transfer. This should consist of:

the identity and age of the employee

the particulars in the section 1 statement

details of disciplinary or grievance matters within the previous two years

court or tribunal cases brought within the previous two years or potential employment claims where there are reasonable grounds to believe that they may be made

collective agreements.

Under Reg 12, failure to provide the information may result in an award of compensation to the transferee for any loss sustained. The minimum amount will be £500 per employee.

Note that the duty to inform and consult representatives of affected employees remains. The most striking aspect of this part of the new regulations is that transferor and transferee may be jointly liable in relation to such failures (Reg 13 to 15).

Dismissals

Dismissals are automatically unfair if the sole or principal reason is the transfer or a reason connected with the transfer that is not an ETO reason entailing changes in the workforce (Reg 7).

But where the sole or principal reason is an ETO reason, entailing changes in the workforce of the transferor or the transferee, the reason for dismissal may be redundancy or some other substantial reason and ordinary unfair dismissal principles apply. Harmonisation of terms after a transfer remains impermissible.

Helpfully, the scope for claiming constructive dismissal has been clarified in Regs 4(9)-(10) so that employees may treat themselves as dismissed if there is a substantial change in working conditions to their detriment. However, where this does not involve a breach of contract, no damages are payable for wrongful dismissal.

Michael Duggan is a barrister and member of the Employment Lawyers Association. He is also the author of the forthcoming book Reorganisations, Redundancies and Transfers, due out in late spring